The Fear of Being Wrong, Part II

Nobody likes to be wrong, but it is in these times when we learn so much and if we pay attention and recognize the errors of our ways, there is a good chance we won’t repeat the same mistakes.  But being wrong can really shake your confidence, I know this all too well.  We don’t like to be wrong because it not only hits the ego but also creates losses to our P/L.   But I’ve been wrong and made money, likewise I have been right and lost a chunk, so let’s throw that theory out the window.  As an options trader the odds are severely against me, and I can be wrong more often than most stock traders?  I have to deal with the clock and hope the market is accommodating to my style of swing trading.

Trading is not a game of perfect.  Whether your poison is options, stocks, commodities, currencies or futures – you cannot expect to be right 100% of the time.  Nobody can see the future and predict with 100% accuracy (don’t we all wish we had the sports results book that Biff had in Back to the Future II)  So, accept that you will be wrong from time to time and move forward.  What is most devastating when wrong is not sizing positions correctly.

As an options trader, I may be wrong 50% of the time or more but still be able to win.  The probabilities of a high win percentage are against me but the leverage of options is the great equalizer.  Though time is not on my side as a buyer if I find the best setups with good potential acceleration, speed and velocity via the chart then at least I have a sporting chance.  But I can always be wrong, and that is okay, because the next trade may be the win that turns it around.

I have been a big fan of fertilizer stocks for years, some of my best wins have been in names like Mosaic (MOS), Potash (POT) Agrium (AGU) and CF Industries (CF).  In fact, I have longer term plays, owning stock and longer term options.  I won’t go into the reasoning here, but this past week made these positions look really wrong.  Some news from a Russian supplier had these stocks plunging to multi-year lows and now require some major lifting just to get back to breakeven.  So, in the interim I am wrong.  Does it bother me?  Somewhat, but because I sized right this temporary loss is not devastating, I’ll just look for the next trade idea and choose to wait for these to recover or take the loss and move on.

Simply put, we fear being wrong when an adverse result hits because we worry if we’ll ever be right again.  Of course, that is an irrational thought yet we carry it through in our minds when we operate on the spectrum of fear and greed.  Understanding the consequences and rules of the game will make wrong decisions quite a bit less worrisome.